City paid law firm close to $1 million on biomass-related fees

Published: Tuesday, January 15, 2013 at 5:32 p.m.

Last Modified: Tuesday, January 15, 2013 at 5:32 p.m.

Gainesville Regional Utilities paid its lead outside legal counsel almost $1 million during fiscal year 2012 for consulting work on biomass-related issues.

GRU paid $924,021 to the law firm Orrick, Herrington & Sutcliffe for helping with matters involving the biomass power plant, the city's 30-year contract to buy power from it, and a bond refinancing that commissioners approved last year to try to cut rate hikes after the plant goes online.

As it turned out, however, GRU did not spend a dime on what would have been another substantial expenditure on biomass-related financial consulting services.

Back in September, the City Commission voted 5-2 to allow GRU to hire up to three investment banks — Goldman Sachs, Bank of America Merrill Lynch and J.P. Morgan Securities — at a cost of up to $600,000 to consult on a plan to set up a third-party conduit to prepay for some of the electricity from the biomass plant.

That was another method GRU was using to try to limit rate increases to $10.56 per 1,000 kilowatt-hours in 2014. The utility projects an increase over current rates of $23 per 1,000 kwh by 2019.

None of the $600,000 was paid to the three investment banks because American Renewables, the firm behind the biomass plant, backed away from negotiations on the prepay agreement.

"We never entered into any authorized agreements with any of the banks for the prepay transaction; therefore, we never spent any of the authorized funds on the transaction," GRU utilities attorney Shayla McNeill wrote in a Dec. 20 email.

While the City Commission authorized paying those investment banks up to $600,000, there was no commission approval for the money paid to Orrick, Herrington & Sutcliffe. Asked why, GRU General Manager Bob Hunzinger said the utility has an existing contract with the firm and the consulting services were covered by that contract.

For decades, Orrick, Herrington & Sutcliffe — an international firm that represents GRU out of its New York City office — has served as the utility's bond counsel.

The firm represented the city in negotiations on the 30-year contract to purchase all the output from the 100-megawatt biomass plant and will represent the city in upcoming arbitration over the late 2011 sale of a 40 percent stake in the plant.

Separate from last year's bond refinancing, invoices from December 2011 up to December 2012 show that GRU paid Orrick, Herrington & Sutcliffe $364,311 on biomass-related issues.

The invoices show that the firm spent significant time over several months on the now-abandoned prepay talks and potential legal remedies for the late 2011 sale of a 40 percent stake in the plant.

The city alleges that transaction, combined with an earlier sale of a 17 percent stake, led to a change in ownership that, under the contract, should have triggered the city's right of first refusal to buy a controlling interest.

Some of the other issues that Orrick provided legal counsel on included financing a reclaimed water line that will run from a city of Alachua wastewater treatment facility to the biomass plant, and the potential sale of energy from the plant.

Hourly rates paid to Orrick, Herrington & Sutcliffe staff ranged from a low of $205 up to $995 for partner Carl Lyon, who has been longtime bond counsel for GRU. Jonathan H. Cole, the attorney who handled the majority of the work, had an hourly rate of $675.

GRU also covered meal and travel expenses.

Asked about the amount paid to the firm, Hunzinger said GRU has limited legal staff — McNeill is the utility's only staff attorney — and Orrick, Herrington & Sutcliffe has extensive knowledge of GRU's finances and the power purchase contract for the biomass plant.

"These are huge financial issues that could have huge financial impacts," Hunzinger said.

<p>Gainesville Regional Utilities paid its lead outside legal counsel almost $1 million during fiscal year 2012 for consulting work on biomass-related issues.</p><p>GRU paid $924,021 to the law firm Orrick, Herrington & Sutcliffe for helping with matters involving the biomass power plant, the city's 30-year contract to buy power from it, and a bond refinancing that commissioners approved last year to try to cut rate hikes after the plant goes online.</p><p>As it turned out, however, GRU did not spend a dime on what would have been another substantial expenditure on biomass-related financial consulting services.</p><p>Back in September, the City Commission voted 5-2 to allow GRU to hire up to three investment banks — Goldman Sachs, Bank of America Merrill Lynch and J.P. Morgan Securities — at a cost of up to $600,000 to consult on a plan to set up a third-party conduit to prepay for some of the electricity from the biomass plant.</p><p>That was another method GRU was using to try to limit rate increases to $10.56 per 1,000 kilowatt-hours in 2014. The utility projects an increase over current rates of $23 per 1,000 kwh by 2019.</p><p>None of the $600,000 was paid to the three investment banks because American Renewables, the firm behind the biomass plant, backed away from negotiations on the prepay agreement.</p><p>"We never entered into any authorized agreements with any of the banks for the prepay transaction; therefore, we never spent any of the authorized funds on the transaction," GRU utilities attorney Shayla McNeill wrote in a Dec. 20 email.</p><p>While the City Commission authorized paying those investment banks up to $600,000, there was no commission approval for the money paid to Orrick, Herrington & Sutcliffe. Asked why, GRU General Manager Bob Hunzinger said the utility has an existing contract with the firm and the consulting services were covered by that contract.</p><p>For decades, Orrick, Herrington & Sutcliffe — an international firm that represents GRU out of its New York City office — has served as the utility's bond counsel.</p><p>The firm represented the city in negotiations on the 30-year contract to purchase all the output from the 100-megawatt biomass plant and will represent the city in upcoming arbitration over the late 2011 sale of a 40 percent stake in the plant.</p><p>Separate from last year's bond refinancing, invoices from December 2011 up to December 2012 show that GRU paid Orrick, Herrington & Sutcliffe $364,311 on biomass-related issues.</p><p>The invoices show that the firm spent significant time over several months on the now-abandoned prepay talks and potential legal remedies for the late 2011 sale of a 40 percent stake in the plant.</p><p>The city alleges that transaction, combined with an earlier sale of a 17 percent stake, led to a change in ownership that, under the contract, should have triggered the city's right of first refusal to buy a controlling interest.</p><p>Some of the other issues that Orrick provided legal counsel on included financing a reclaimed water line that will run from a city of Alachua wastewater treatment facility to the biomass plant, and the potential sale of energy from the plant.</p><p>Hourly rates paid to Orrick, Herrington & Sutcliffe staff ranged from a low of $205 up to $995 for partner Carl Lyon, who has been longtime bond counsel for GRU. Jonathan H. Cole, the attorney who handled the majority of the work, had an hourly rate of $675.</p><p>GRU also covered meal and travel expenses.</p><p>Asked about the amount paid to the firm, Hunzinger said GRU has limited legal staff — McNeill is the utility's only staff attorney — and Orrick, Herrington & Sutcliffe has extensive knowledge of GRU's finances and the power purchase contract for the biomass plant.</p><p>"These are huge financial issues that could have huge financial impacts," Hunzinger said.</p>